Study Says Employee Training Increases a Company's ROI

By David Essex, ITworld |  News

There's little debate that companies should invest in their people by
offering training and other educational opportunities. But such
investments are usually swept under the rug as expenditures best kept
from the eyes of frugal shareholders. Now an effort is afoot to prod
companies to view employee training as an investment -- even to report
it in their financial statements alongside R&D and capital
expenditures. New evidence suggests that the money will come back in
enhanced shareholder value.

That's the conclusion of the American Society for Training and
Development (ASTD; based in Arlington, Va.), a professional association
of 70,000 corporate-learning specialists around the world. It routinely
collects detailed training data for its benchmarking service, and by
last fall had accumulated enough data from 575 US companies between
1996 and 1998 to show a link between training expenditures and total
stockholder return (TSR). The study, entitled "Profiting from Learning:
Do Firms' Investments in Education and Training Pay Off?" provides new
ammunition for anyone who needs to make the case for employee training
programs.

Why training pays
ASTD defines a company's TSR as the change in its stock price plus
dividends, calling it the best measure of a stockholder's actual
return. ASTD found that companies that spent $680 more per employee per
year than the average company increased their TSR by six percent the
following year. These top companies had a 37 percent TSR, while
companies investing below the average (ASTD doesn't give a figure for
this average in its report) had an average TSR of 20 percent, compared
to a 26 percent return of the Standard & Poor's 500 index. The top
quarter of the study group spent $1,595 per employee, while the bottom
quarter spent just $128. ASTD can't reveal the companies that
participated.

Skeptics might hunt for other causes for these figures. Perhaps
productivity-enhancing IT expenditures boost TSR, or perhaps some
industries simply have inherently higher returns. But the ASTD
applied "a more sophisticated statistical model" that employed
multivariate regression and still found a positive effect from
training. With employee education factored in, the model's ability to
predict TSR growth improves by 50 percent.

The study notes that training probably influences TSR indirectly by
positively affecting other "productivity indicators" that the market
recognizes. "We do know from our research that employee retention is
higher at companies that have significant training efforts," says Mark
Van Buren, ASTD's director of research and the study's coauthor. He
adds that "more of the firms that lead in terms of investment in
training are in the IT sector."

While it's too early to say which types of training are most effective,
the data is yielding some answers that ASTD may soon publish in a
report, Van Buren says.

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